Part Two of an Interview with John Brimelow
By Kevin Michael Grace
This article is part two of an Interview with John Brimelow posted on September 14th. The first article is Can Gold and Junior Resource Companies share in the Gold Price Surge?”
John Brimelow is an independent gold analyst from Connecticut; his writings on the subject appear at Le Métropole Café (lemetropolecafe.com). Kevin Michael Grace interviewed him September 13.
Q: What will be the price of gold by the end of the year?
A: I think there’s a reasonable chance it will make a stab at $1,500. But I’m not going to say it’s going to stay there forever. The final quarter in recent years has become the best quarter for gold. The basic reason for it is that the major buyer is India. The final quarter of the year is when their marriage season peaks.
Q: How important is India in the gold market?
A: They are the largest single buyer; they buy a fifth of world gold production. Actually, however, their impact on the world gold trade is a great deal higher for two reasons. One is that India itself produces little gold, in contrast to China, which is frequently cited as a major influence on the world gold market. This simply isn’t true. China consumes apparently north of 300 tons of gold a year, a considerable amount more than it did a few years ago. But it also mines a tremendous amount of gold, so the amount the Chinese need to import has only recently risen over 100 tons. Whereas the Indians have been importing 500 to 800 tons for a number of years.
Q: What’s the second reason?
A: India is an extremely well-managed economy. Amazingly enough, after 40 to 50 years of socialism. Rather like Canada, which must be given credit for completely side-stepping the current mess, which essentially stemmed from reckless activities by the banking sector in many countries, particularly in America. Consequently, India is absolutely booming. This morning they published their industrial production numbers, which are over 13% higher than last year. And India is one of those countries that when wealth rises, a significant amount of it is spent of gold.
Q: Is the gold bought for jewellery or as an investment?
A: Most of it is fabricated into jewellery, but there is an issue of as whether the jewellery is actually adornment or investment, because as you probably know they won’t buy jewellery unless it’s .995 or higher. So it’s tantamount to an investment instrument. Traditionally, Indian women get to keep their own gold, and it remains their property in the event of divorce. Indian brides are sometimes married wearing a pound or more of gold.
Q: Is gold rising because investors see it as a safe haven?
A: The thing about gold is that every culture in the world has some appetite for it to a greater or lesser extent, but it is never zero. Every community has a different approach. There’s no doubt that in the West over the last two or three years there has been a tremendous revival of the appetite for gold in investment form.
Q: As we see on TV, there is now a significant market for reclamation of old gold jewellery. Does this depress the price?
A: Oh yeah, but that reached its height at the height of the financial crisis. It’s basically been turned from jewellery into investment product back into coins and ingots and so on. So it’s not clear that net the American investment market is negative.
Q: Over the past month, one has heard the word “bankrupt” used with regard to the United States. Will this drive up the price of gold?
A: There’s obviously considerable potential for more buying by Americans of gold items. It’s more than it was, but a fraction of what it could be. As marginal tax rates go up, gold obviously facilitates black market transactions, so that’s another factor.
Q: Where do you see gold in 12 to 18 months?
A: That’s farther than I like to look, but it’s difficult to see any reversal in the trend of financial and monetary events towards currency debasement, risk anxiety and adverse political environments. Plus, the Far East is continuing to roll along. Vietnam has emerged as an astonishingly large gold consumer, too. In the last two or three years it’s been buying gold from the world market as rapidly as China has been.